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Covington Helps Spain Sink Salvage Claims in Shipwreck Suit

Posted by Brian Baxter

Odyssey Marine Exploration believed it had one of the
most lucrative shipwreck discoveries in history on its hands in May 2007, when
the Tampa-based treasure hunter announced it had recovered 17 tons of gold
and silver artifacts from a secret Atlantic Ocean site codenamed the
Black Swan.

Odyssey had filed a salvage claim to the Black Swan site
in U.S. district court in Tampa, so that's where the litigation battle began. The combatants: Spain, Odyssey, and a host of others interested in a treasure estimated
to be worth nearly $500 million.

"More than two hundred years have passed since the
Mercedes exploded. Her place of rest and all those who perished with her that
fateful day remained undisturbed for the centuries--until recently," wrote
Pizzo in his 34-page decision. "International law recognizes the solemnity
of their memorial, and Spain's sovereign interests in preserving it."

If U.S. district court judge Steven Merryday affirms
Pizzo's recommendation that the case be dismissed, it could leave Odyssey with only ten days to return the Black Swan bullion. Goold says Pizzo left
no doubt in his decision that the Black Swan site was actually the final resting place of the
Mercedes.

"The site of the [Black Swan] ship clearly matched
the historical reports of where the Mercedes exploded and sank in 1804,"
says Goold, assisted on the case by Covington associates José Arvelo
and Enrique Armijo. "The site had Spanish coins that were dated that year
as well as cannons of which a frigate of that time would be equipped. The
Spanish Navy did an analysis for me, which we compared to the actual GPS location,
and it was a bull's-eye."

Pizzo's report is a devastating blow to Odyssey, which
has tried to reform its swashbuckling image in recent years by partnering with the Discovery Channel for a television show called Treasure Quest. The hour-long weekly program chronicles how the salvager goes about its deep sea
recoveries. Litigation is mentioned only in passing.

"We really didn't expect this," says a shocked Melinda MacConnel, Odyssey's general counsel. "For the magistrate to recommend
dismissal of the case without even giving us the opportunity to cross-examine
the witnesses presented by Spain is just not right. [Pizzo] thoroughly accepted
the facts as presented by Spain and rejected those presented by Odyssey."

Both sides in the litigation argued their case through
motion practice with no oral hearings. MacConnel says Odyssey wanted an
evidentiary hearing to judge the credibility of the witnesses appearing in
written statements, but one was never granted. It's not her only objection to
Pizzo's decision.

"I think that the magistrate's report and
recommendation ignored several key facts in the case, including the fact that
we found no vessel at the Black Swan site, just a debris field," MacConnel says. "Even if
the cargo that we recovered came from the Mercedes, the cargo itself is not necessarily
sovereign immune property. We know that the vast majority aboard the ship was
privately owned."

Beyond that, MacConnel says, Pizzo erroneously stated that the
Mercedes was not on a commercial mission. In order for a vessel to enjoy
sovereign immunity, MacConnel says that it must be on an exclusively
noncommercial voyage. The legal reasoning: courts don't want sovereigns
cloaking their vessels in immunity merely by calling them warships.

"The Foreign Sovereign Immunities Act, which Spain
is arguing should be used to dismiss the case, has never before been used to
deny a U.S. court admiralty jurisdiction over cargo that has been recovered
from international waters," MacConnel adds. "That's a first. But I'm
hoping that the [district] judge sees this error and rejects [Pizzo's]
recommendation."

Pizzo also struck down claims by Peru--represented by
former Bracewell & Giuliani partner Mark Maney in Houston. The South American nation seeks a stake
in riches it claims originated in the country when it was a Spanish colony.
Goold says Pizzo wisely chose to keep U.S. courts out of the realm of
unraveling colonial disputes. (Twenty-five individual descendants of sailors who died aboard the Mercedes also filed claims; those, too, were struck down by Pizzo.)

MacConnel says Odyssey will object to Pizzo's report and
recommendation. As part of that objection, she says, Odyssey will request a
stay on any order directing a return of property to Spain until a final
resolution of the case.

"This case is far from over--there are a lot of
novel issues here," MacConnel says. "The admiralty court is a court
of equity, but it's simply not equitable to direct Odyssey to turn over
property to Spain that never belonged to it. It's crazy."

Lawyers expect Merryday to issue his ruling within the next
few months.

Comments

This is far from over. There are expected to be numerous appeals beyond this court no matter which side wins. This is expected, so no early resolution was expected.

If I was Odyssey, but I'm not, If I lost in the Ultimate court, I'd quickly put all the coins on a 747 Cargo flight and send them to Spain via Peru, because of refuleing needs. And then hope that Peru grabs them and takes them to thier courts. The Judge didn't specify the route.